How much do groups like the poor, the middle class, the professional class, the wealthy and the super wealthy pay in taxes as a percentage of income? By pay taxes I mean payroll deductions, property taxes, sales taxes, etc. Is it about even for all the groups since the poor pay less as a percentage in income tax but pay a higher percentage in things like sales tax and property tax?
The following addresses federal income taxes, and is slightly dated:
Houston Chronicle, January 13, 2003
% Share of Income Average
Group Total Taxes Split Point Tax Rate
Top 1% 37.4 >$313,469 27.4%
Top 5% 56.5 >$128,336 24.4%
Top 10% 67.3 >$92,114 22.3%
Top 25% 84.0 >$55,225 19.1%
Top 50% 96.1 >$27,682 16.9%
Bottom 50% 3.9 <$27,682 4.6%
Sales taxes are not progressive, so they even things out a bit, but the last time I did the numbers (for a thread about a year ago, IIRC) they did not significantly alter the relative relationship described above. Property tax rates are generally the same for anyone in a specific locale, and they are progressive in the sense that the higher income earners are those most likely to be paying taxes on property with higher value.
It would be interesting to see some well researched numbers on how sales (and gasoline) and property taxes do alter the picture. I’m not inclined to expect they even it all out, though.
I’ll take the easier part of the question - FICA.
Social security - 6.2% for employees and 1.45% medicare - their employers match that. Self employed both portions(12.4 and 2.9). Very low self employed income($400??) is not taxed.
There’s a maximum income on Social Security of $87,900(for 2004). There is no max on the medicare portion.
Property taxes would depend on the state, school district etc. California has extremely low property tax rates compared to some others. Warren Buffet was selected by Gov Arnold to help out on the budget mess last year and Buffett caused quite a flap commenting on this fact. Something like if my house were in California, I’d be paying a fifth what I’m paying now.
Yes, SS and Medicare taxes are regressive, in the sense that they are flat taxes and kick off after a certain payment level, per annum, which many never reach, has been met.
I’m still doubtful that the tax picture for all income levels even comes close to leveling out. But, let’s see what numbers come up.
When you consider minor things like household purchases, gasoline and cigarettes, which are minor expenses for the wealthy but a large part of the budget for poor and middle class people it could.
If a family made 2400 a month and smoked 2 packs a day that is about $120 a month In Illinois
According to this most likely unreliable but only website I could find 30% of gas money is taxed. If you have 2 cars you may spend $200 a month on gas, so that is $60 a month, or 2.5% of their income.
So cigarettes and gasoline alone can take up 7.5% of a familys total income in taxes, for the wealthy the number is probably closer to 1% so even if they pay a higher income tax rate it may end up the same in the end. Plus as aahala pointed out there is a cap on SS taxation rates.
How’s tobacco taxed? Does it vary by state?
Yes, very much so. A pack of cigarettes in Massachusetts runs about $5. I think it is over $7 in NYC. Most other states are much cheaper.
One example -
State Tax Rates on Other Tobacco Products
Um, no. Californians pay a base 1% of the value of the house, plus what is approved locally via voter referendums (in LA, this causes property taxes to be about 2% of the value of the house). What is weird is how houses are valued. The value of the house increases by 1% per year, and increases to its market value on sale of the home. Houses in California appreciate faster than in many places in the US, with 15% a year not being unheard of. Since houses are only revalued to “market value” on sale, someone who has owned a home longer pays less in property tax than someone who purchased a home more recently: they would be seeing appreciation of 1% per annum, as opposed to the real appreciation of closer to 15% per annum. Buffet’s comment was that, since he had owned his house for 30 years, he was paying considerably less in property taxes than his neighbor. More importantly, since commercial real estate seldom changes hands, businesses gain more from prop 13 than do home owners, who typically sell their home every 7 years or so.
Prop 13 is controversial and has many problems. That Californians “pay less” in property taxes is reductive enough to be completely incorrect.
The reason they are regressive in this sense is that there is also a maximum payout on the other end (when you retire). At least that was the original justification. But FICA is a unique tax in that it represents an explicit cash payback later in life. No other tax is distributed back in the same way, so it’s not really accurate to lump it in with other taxes in the same way. I’m not sure what the best way to handle it is, but treating it just like any other tax in an analysis like this is incorrect.
bashere
It seems to me your fine description of tax matters supports my statement. If property is not being remarked until sale and taxes can not rise as fast as market value, then the effective rate(annual taxes divided by market value) is going down, compared to most of states, over time resulting in a much lower tax rate than some other states. The intent at least, in many states is to assess property regularly based upon market value–many states don’t have a Prop 13 type limitation .
In regard to Buffett and what his original comments really were, I can’t comment on since I wasn’t physically there at the time. I was going by the news account. It’s true he got the medias ear claiming the original new accounts were inaccurate, but that was AFTER the political flap.
The noteworthy part of Buffet’s statement was that because of Prop. 13, he was paying less tax on his property in California than on a considerably less valuable property in Nebraska: Realtor Magazine | Real Estate Tips, Trends, Data & More
It does seem we may be talking at cross purposes. As a percentage of the market value of the home, it is likely that a Californian is pay less than a resident of another state (the longer the Californian has owned the home, the more likely this is, until it becomes a certainty). I interpreted your comment to mean that you were talking in absolute dollars, in which case it is possible that Californians may be paying less, but not a foregone conclusion. Please accept my apologies both for misinterpreting your statement and for sounding snippy - prop 13 is a difficult subject for many Californians.
Buffet isn’t a unique case, but his example is an extreme one: he was referring specifically to a place on the ocean that he purchased over 30 years ago, when it was really cheap, and that had appreciated considerably.
I stand corrected on his specific comment; in my defense, the hopes of overturning prop 13 lie in the jealousy generated when one finds out ones neighbor is paying less in taxes, and I must have conflated the debates generated by his statement. I should also point out that I was incorrect in stating the appreciation of houses: it is 2%, not the 1% I wrote. I would mention that I pay considerably more in taxes on my house in LA than I do on my house in high-tax Canada, even though the house in had a higher market value.
My point is that in order to determine if Californians have a very low property tax rate compared to the rest of the nation it isn’t really safe to state that Buffet doesn’t think we pay enough, but rather check to see what the average tax bill in dollars is, or what the average bill in percentage of take home income is.
:: hijack::
Well, I’m not so sure about that. My understanding is that people get out of it a helluva lot more than they put in due to huge increases in longevity since the system was first devised. So nowadays, FICA does not represent a situation where you’re getting an “explicit cash payback later in life.” (Although I’ll agree with you that it was initiially designed to do just that.)
John, I know you’ll crush me in a debate on this, (yep, I have the utmost respect for you, and I think you’re better than me), but wouldn’t part (just part) of a solution to the “Social Security crisis” be to eliminate this cap? At least it would help for a couple or a few years.
I’m sure someone has done a workout of this.
On one hand the rich have higher income taxes. I dont know about property taxes because I don’t know what percentage of income the rich vs poor spend on housing. It wouldn’t suprise me is the poor spent a bit more (maybe 35% vs 25% as a guess) on housing than the rich. As a result they’d pay more in property taxes as a percent of income.
Also the middle class will pay more as a percent of their income in sin taxes like cigarettes, lottery ticket and alcohol. Also they’d pay a higher percent in sales taxes and gasoline.
In the hopes of being slightly more coherent, this site: http://www.azcfrc.az.gov/secure/Single%20Assessment%20Ratio.pdf (warning, PDF) gives the Effective Property Tax rates per state. California ranks 29th in the nation, or slightly below the median.
These tax rates are calculated assuming a $150,000 Land and Building, and $50,000 in fixtures (I don’t know what the second means). I would point out that 200 grand is not a lot of money to spend on a home in an urban area in California, and so I am not entirely certain this provides that much useful information. Net Total tax is somewhat useful for answering the original question, though.
Also, the gov’t siphons off (well, borrows, but it’s debatable whether they’ll ever pay it back) surpluses in the SS taxes to pay for things in the general fund, which effectivly lowers the federal income tax. So it’s incorrect to say that all of the money that we pay in SS payroll tax goes into the SS system, which will reimburse us later.
David Cay Johnston’s analysis, described in this blog , claims the overall tax rate is practically flat over all income groups.
The notable point of Johnston’s analysis is that payroll taxes are included, whereas others say payroll taxes shouldn’t be counted as taxes because there is a capped benefit associated with them. But, in addition to Malodorous’s comment, if you bring the benefits end of it into the debate, different groups benefit disproportionately from almost every government program, from defense contracting to welfare. To be consistent one would have to look at the whole range of benefits, not just Social Security.
[bold]Ringo[/bold], do you know how these numbers are calculated? % withheld at time of earning? % paid on taxable income? What I’m trying to find out is if tax deductions (mortgages/donations/etc) were calculated into the earnings.